Cutting expenditure: where to start

Valerie Morton offers advice on keeping control when budgets are slashed

Q: I've just been told to cut expenditure by 15 per cent. Help!

A: Don't panic - you're not the only one. It's important to split the process into two distinct parts: first, stakeholder communication and involvement; second, the business decision process.

When big changes are in the air, it is tempting to try to do all the work in private and then make one big announcement. Inevitably, this will backfire. News will seep out, your best staff will leave and the rest will lose motivation. It is far better to be clear and honest at the very start. You could even invite staff and beneficiaries to come up with ideas and evaluate the options. Yes, it really can work.

When it comes to the decision-making process, now is the time to do the maths. Do you have all the metrics you need to truly understand your business? Which of your services provide the best value for money and which ones have most impact on your beneficiaries? With fundraising, how do you compare the benefits of short-term income generation against long-term fundraising investment? Do you really know how much everything costs in your charity? In particular, what is the real overhead cost of each activity?

If you don't know the answers to these questions, there is a great danger that you will make decisions that don't actually affect the bottom line. Armed with all this information, you can look at some of the options. Are there services that could be delivered in new, innovative ways with a dramatically different cost base?

Staffing is likely to be your greatest cost. Do you cut the head count or keep it the same, but give people the opportunity to take sabbaticals or work fewer hours? If you are worried the work cannot be done with fewer people, look at the man hours that can be saved by working more efficiently.

There are two final points to consider. First, of course we care about our staff, but when times are tight you have to make hard decisions if you are going to manage the business within your available resources. Second, small ticket items - cancelling some meetings, limiting usage of paperclips and so on - will not make the difference you need, but do help make a point. But please don't make people drink disgusting cheap powdered coffee. There is a limit.

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